Do I need to keep a logbook? It’s one of those questions that can strike terror into the heart for those of us of a certain age who kept a logbook the old school way, that is with an actual, hard copy logbook and a continuously disappearing pen. The information -and misinformation – that surrounds motor vehicle expense deductions can be quite convoluted and messy, but really? The rules aren’t overly complicated.
Just like Working From Home , there’s a raft of opportunities and obligations when it comes to claiming motor vehicle expenses. The ATO have extensive information about claiming motor vehicle expenses, including how to define a motor vehicle – spoiler alert a hoverboard isn’t going to meet the definition! Bottom line, however, is that if you use a motor vehicle in the course of earning income (however usually not from travelling to and from work) there are a range of deductions you might be able to claim. Motor vehicle expenses incurred while earning assessable income as an employee, as an investor or in carrying on a business are deductible.
Let’s dig a little deeper:
A taxpayer can claim a deduction for work-related car expenses if they use their own car in the course of carrying out their job as an employee. Some examples of this include carrying bulky tools or equipment, attending meetings, delivering or collecting supplies, travel between two separate places of employment, travel from the normal workplace to an alternative workplace and back to normal workplace or home and travel from home to client’s house then to normal workplace or directly home.
It’s important to note that the cost of an individual’s license is not deductible and other expenses such as parking and tolls are deductible separately as travel expenses.
There are two possible methods to calculate a deduction for car expenses. These are the cents per kilometre method (with an existing 5000km cap) and the logbook method (with unlimited kms).
Cents per kilometre method
The cents per km method applies a set rate per kilometre to kilometres travelled up to a max of 5000kms. A single rate is used: 72 cents per kilometre from 1 July 2021 for the 2022 income year and the rate is 78 cents per kilometre from 1 July 2022 for the 2023 income year.
There is no need for a logbook or written evidence. This method just requires the number of kilometres based on a detailed and reasonable estimate. You do need to be able to show how you work out your business kilometres such as by recording work-related trips in a diary.
The requirements for the logbook method are maintenance of a logbook for a continuous period of at least 12 weeks in the first year and then every 5 years to determine the business usage. Odometer readings are used to calculate kilometres travelled both during the entire year and during the logbook period.
Fuel costs require either receipts or a reasonable estimate based on odometer records. Receipts for all other expenses such as insurance and repairs and maintenance are required.
Capital costs such as the purchase price of your car or any improvement costs (for example, adding paint protection or tinted windows) are not deductible.
Your work-related percentage is worked out by calculating:
• The total number of kilometres you travelled during the logbook period, then
• Calculating the number of kilometres you travelled for allowable work-related trips during the logbook period, then
• Dividing the total kilometres by the allowable work kilometres, then
• Multiply this figure by 100.
This gives your work-related percentage. Next:
• Multiply it by your car expenses to calculate your claim.
Depending on your circumstances, one method may be more appropriate to your needs than the other, and of course the best way to determine this is via expert support as the information provided above is general in nature and not tailored to individual circumstances. To find out more about how we can help, please reach out.